February marked the first down month (-3.89%) since March of last year. And the drop of .04% in that month was so minuscule you had to squint to see it! In fact, you have to go back twenty-five months to January 2016 to find a worse performing month than this past February. Needless to say, quite the run for the stock market, which may be the reason for such an abrupt change in market sentiment (i.e., how people feel about the stock market).
Adding fuel to the fire, volatility picked up during this past month to a level not seen… well, since January 2016. Over a two-week period, the stock market gave up 10%+, only to regain nearly all of it before month-end. Price drops for the Dow Jones registered in the 1,000-point range. Measured as a percentage, definitely not as dramatic, but as we all know, drama sells, so we heard a lot about the 4 digit drops!
As we head into March, what does the volatility and subsequent price drop(s) in February tell us to expect for the rest of the year? Well, I couldn’t tell you (nor should anyone else) where stock prices will be in the short-term. But, if this past month is any indicator of the rest of the year, it tells us the stock market we have known (as being participants) for nearly two decades, has returned! Meaning:
· Volatility is beginning to return, driven by different opinions,
· Fear is returning to the market, and subsequently,
· Investors are seeing opportunities in the stock market (driven by the volatility).
All of this is due to the specter of interest rates rising. While rising rates is an indication of a strengthening economy (which is good), it also gives investors options other than the stock market. Many market participants seem to have amnesia and forget how low interest rates are… especially historically. These low rates essentially has made the stock market the only game in town (i.e., there was no reason to own bonds or other interest rate dependent investments). Well, as rates rise, this will definitely change. As long as the economy continues to strengthen, and our beloved Federal Reserve does not raise rates too fast, investor behavior (i.e., overselling stocks beyond fair value) will create buying opportunities for those willing to hold for the long-term!